Maya Fisher-French interviews Robert Kiyosaki on his new book Fake, and why he would rather own Krugerrands than rands.
About two weeks before reading Fake by Rich Dad, Poor Dad author Robert Kiyosaki, I had sold my Krugerrands to pay for the installation of solar panels for my home and office.
I had reason to question my decision because the first section of Kiyosaki’s book is about why you should buy lots of gold and silver. Kiyosaki’s point – in fact the whole point of the book, which is about fake money, teachers and assets – is that he believes that the financial system is going to collapse.
This is not a new idea and he quotes many financial authors who have warned that the global economic crash that began in 2008 did not eradicate the very unsavoury and unsustainable practices in the financial industry around the creation of “fake assets” and the inflation of the prices of these assets, which have simply allowed the financial industry to make more money.
“Rather than creating new businesses, new products, more jobs and rebuilding the US economy, they created exotic and risky financial instruments, including derivatives and credit default swaps, that produced sugar highs of immediate profits, but separated those taking the risks from those who would bear the consequences,” he writes.
In Kiyosaki’s opinion, gold and silver is “God’s money”. It has been the primary medium of exchange for thousands of years. He argues, as do many gold bugs, that the decision to delink the US dollar from the gold standard in 1971 has allowed the US government to print money to solve its trade deficit problems, but it introduced inflation to the system and started the long-term decline of the US dollar.
He is clear that gold is not an investment. It is not something that he intends to make a profit from – despite holding “millions and millions” of dollars worth of the precious metal in private value outside the US.
For him, it is purely an insurance policy against a financial meltdown.
“I do not own gold and silver to make money. They are insurance – a hedge against the stupidity of the elites … and myself,” he says.
Kiyosaki is still a firm believer in property for investment returns. He covers some of the basics of this in Rich Dad, Poor Dad.
I found Fake, which includes some of his spiritual beliefs and his financial philosophy, disjointed and repetitive, and at times contradictory. However, I got a better idea of his overall investment philosophy after I had the opportunity to interview him.
He told me at the outset that he is “a different category of investor”.
This is an important point. Kiyosaki has made his money through real estate and his business behind the Rich Dad, Poor Dad franchise. His investment choices are not necessarily available to the average person and would not necessarily fit their financial needs.
Kiyosaki puts all his money into gold because he doesn’t need it to generate income or to grow – it is in effect excess money.
“I would rather save in Krugerrands than in rands,” he says. But that should not be mistaken for investing in Krugerrands.
His book is dismissive of “paper assets”, which include stocks, bonds, mutual funds and exchange-traded funds. He argues that these paper assets are just derivates of the actual asset and he would rather own the actual asset.
This is a good argument if you have millions, but what if you want to invest in infrastructure as an average investor?
You couldn’t afford to finance an entire infrastructure project or buy a whole company, so the “paper” allows you to own a portion of it and have some exposure to its profits.
Kiyosaki acknowledges this in his book because “paper assets are easy to get into and get out of”.
When I ask him about billionaire Warren Buffett, who has made all of his money through paper assets (shares), Kiyosaki says: “I am not anti businesses, I’m just an educator and I love real estate.”
He explains that his real business model is not real estate, but debt and taxes. He finances his assets and thereby benefits from the tax breaks that are offered for financed real estate.
During the financial crisis, when property prices crashed and interest rates in the US dropped, he leveraged – borrowing hundreds of millions of dollars at lower interest rates and buying property at bargain prices.
“When the markets did crash in 2008, Kim and I made millions,” he writes in the book.
He acknowledges that the same was true of people who bought up shares at bargain prices during the same period.
In Fake, he writes that, “when markets crash, the rich simply borrow money and buy back workers’ shares at bargain basement prices”.
So the key financial principle for Kiyosaki is to use debt to purchase assets and benefit from the tax breaks. He prefers real estate because he can own the underlying asset directly as opposed to holding a piece of paper.
He is very clear that not paying tax, legally, is one of the keys to making money.
When I asked him how he feels about the growing anger that the rich do not pay their fair percentage of taxes, he argued that the poor are only angry because they are not taught at school how to invest and avoid taxes.
In summary, the book is an attack on the establishment and status quo. It certainly highlights the need for alternative assets, but I would argue that this doesn’t just mean gold and property.
Reflecting on my decision to swap my Krugerrands for solar panels, I decided that, if the world is indeed facing an even bigger crisis than 2008, having a secure and independent supply of electricity will provide me with more insurance than my gold coins.
Unlike gold, it also generates a return, which is an important factor considering I am not in Kiyosaki’s financial position and so need my investments to grow or generate an income.
There certainly needs to be a broader discussion around alternative asset classes such as farming, alternative energy and infrastructure –these are all assets humans actually need and use.
Some can be purchased directly, even through crowdfunding platforms such as Fedgroup Impact Farming and Lifestock Wealth, but, in many cases, you have to buy “paper assets” to access them.
It is all about the price you pay and the cash flow (interest and dividends) they produce.
In terms of gold as an investment, Kiyosaki sums it up well when he writes that some predict gold will reach $10 000 an ounce, but others predict that gold will drop to $400 an ounce.
“What you do will depend on what you believe. I do not care. As I said, I buy gold and silver and will never sell for the reasons I have just explained,” Kiyosaki writes.
The book is worth a read if you want to expose yourself to different ways of thinking, but understand the position of the author as being in a different category of investor, which may not be a blueprint for your own finances.